Sunday, February 28, 2016

In October 2015, I posted HAWB 1791 - Alexander Hamilton rejected Adam Smith. What I am posting today could be titled HAWB 1791 - Alexander Hamilton rejected Adam Smith Part 2. My October 2015 post mostly discussed Hamilton's refutation of Smith's advocacy of free trade. Near the end, I presented Hamilton's argument in favor of direct government intervention in the domestic economy, by excerpting from European Origins of the Economic Ideas of Alexander Hamilton (Arno Press, New York, 1977), by Robert James Parks:

One of the doctrines of the physiocrats which Smith had
accepted was that of non-regulation of business, with a neutral policy
toward its growth. Let alone, neither encouraged nor discouraged,
industry would seek its most useful and profitable employment. Against
this hypothesis, Hamilton offered several objections. These were that
the supposed tendency of industry to seek its most profitable employment
was inhibited by the force of habit, the spirit of imitation, fear of
new ventures, the intrinsic hazards of new enterprises, and the unfair
competition created by the bounties and subsidies given in competitive
nations. Experience teaches that men change habits only slowly and
reluctantly. It is the job of government to encourage and speed up
change. He argued that capital is cautious, and can only be made
venturesome if the government removes some of the risks.

"Experience teaches," Hamilton wrote in Section VII of his December 1791 Report to Congress on the Subject of Manufactures,

that men are often so much governed by what they are accustomed to see and practice, that the simplest and most obvious improvements, in the most ordinary occupations, are adopted with hesitation, reluctance, and by slow gradations….

The apprehension of failing in new attempts is, perhaps, a more serious impediment. There are dispositions apt to be attracted by the mere novelty of an undertaking; but these are not always the best calculated to give it success. To this it is of importance that the confidence of cautious, sagacious capitalists, both citizens and foreigners, should be excited. And to inspire this description of persons with confidence, it is essential that they should be made to see in any project which is new—and for that reason alone, if for no other, precarious—the prospect of such a degree of countenance and support from government, as may be capable of overcoming the obstacles inseparable from first experiments.

I have to admit: the idea that it is the role of government is to actually "encourage and speed up
change" startled me. It is far outside the confines of what is now accepted discourse in politics and economics. According to Ronald Reagan, whom conservatives like to venerate as the greatest President ever, government is the problem, to be hampered and crippled as much as possible. As Parks points out, this policy of Hamilton--of the government actively prodding the economy forward--puts the lie to the claim that he was a conservative. And of course, the very idea that government is the source of progress is complete anathema to libertarians. But Parks' summary of Hamilton's argument presents us with a very important, even, crucial, point: that the free enterprise system under laissez faire is actually not that innovative and entrepreneurial without the support and nurturing of government. And the numbers back this up: as its economy was deregulated and financialized over the past four decades, the USA economy has become less capital intense (less capitalistic) and less entrepreneurial.

....what wealth really is, is the human power of thinking:
reason, investigation, hypothesizing, testing, figuring out why things
are the way they are -- and then figuring out how that new knowledge can
be used to change the way things are.... Without the constant development of new science and technology, any
society will become impoverished, and will eventually collapse. Jared
Diamond’s book, Collapse: How Societies Choose to Fail or Succeed,
examines how societies descend inexorably into collapse when they
ignore environmental limitations and mismanage their natural resources.
The key point that most readers of Diamond miss is that a society’s
environmental limitations are defined only within a fairly specific
period of time based on the prevailing technological mode of that
society’s economy. Any society that remains stuck in one technological
mode will eventually bump up against environmental limitations: what is
considered a resource and how much of it is readily available and
usable.... So the most important economic activity a society engages in is the
pursuit of new scientific and technological knowledge that allows that
society's economy to avoid environmental limitations and inefficient
misuse of natural resources. This is one of those wonderful, mysterious
paradoxes of life: basic scientific research has no measurable immediate
payback but nonetheless is THE most important economic activity that
occurs in a society.

....Apple was able to ride the wave of massive State investments in the 'revolutionary' technologies that underpinned the iPhone and iPad: the Internet, GPS, touch-screen displays, and communications technologies. Without these publicly funded technologies, there would have been no wave to... surf.

Even the now-famous SIRI voice recognition and response capability was originated as a government project: In 2000, the Defense Advanced Research Projects Agency contracted with Stanford Research Institute (SRI) to coordinate the efforts of 20 universities (most of them publicly funded) in a project named 'Cognitive Assistant That Learns and Organizes' (CALO). In 2007, SRI began to effort to commercialize CALO by forming SIRI as a venture-backed start-up. In 2010, Apple purchased SIRI outright, to incorporate the CALO technology--originally developed by government--into the iPhone.

I have no doubt that Hamilton understood the connection between the advance of science and technology, and economic growth and development. Later in the Report on Manufactures, Hamilton provided his view of what was meant by the Constitutional mandate to "promote the General Welfare." It is highly significant that he does as he explains why the government has the power to actively promote manufactures.

A question has been made concerning the constitutional right of the Government of the United States to apply this species of encouragement, but there is certainly no good foundation for such a question....

...the power to raise money is plenary and indefinite, and the objects to which it may be appropriated are no less comprehensive than the payment of the public debts, and the providing for the common defence and general welfare. The terms “general welfare” were doubtless intended to signify more than was expressed or imported in those which preceded; otherwise, numerous exigencies incident to the affairs of a nation would have been left without a provision. The phrase is as comprehensive as any that could have been used, because it was not fit that the constitutional authority of the Union to appropriate its revenues should have been restricted within narrower limits than the “general welfare,” and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.

It is, therefore, of necessity, left to the discretion of the National Legislature to pronounce upon the objects which concern the general welfare, and for which, under that description, an appropriation of money is requisite and proper. And there seems to be no room for a doubt that whatever concerns the general interests of learning, of agriculture, of manufactures, and of commerce, are within the sphere of the national councils, as far as regards an application of money. (Emphasis mine).

Because science and technology is always advancing, it was impossible for Hamilton and the other framers of the Constitution to foresee what a concern for the General Welfare might entail. Indeed, it would have been foolish to even try. Thus, it is "left to the discretion of the National Legislature to pronounce upon the objects which concern the general welfare." For example, it would have made no sense to enact a government program, anytime during the 1800s, to put a man on the moon. Indeed, it would have been seen as "lunacy." But by the 1960s, when the development of metallurgy, material sciences, astrophysics, radio communications, electronics, chemistry, aeronautics, and a host of other scientific and technological fields had advanced far beyond what they were just a few decades previous, it was absolutely fitting and proper that we make a commitment to land men on the moon, and return them safely to earth.

Indeed, as I hope to write in the future, the manned space program was one of the key factors in the development and commercialization of semiconductors and computer chips.

It is only be reclaiming the entire conception of American republican political economy, with the crucial role of science and technology, that we can begin to accurately judge and fully understand just how dangerous and damaging are the anti-science ravings and posturings of conservatives, and the anti-government yowling of libertarians. Yes, they are anti-science and anti-government, but in the full incandescence of history, they are revealed to also be deeply anti-American.